Time Horizon of Government and Public Goods Investment: Evidence From Japan
60 Pages Posted: 23 Mar 2018 Last revised: 23 Feb 2019
Date Written: December 20, 2018
Whether longer tenure of political agents leads to better public policies is a central question of political economy. Tenure security extends the time horizons of dictators, and this property may be important for understanding economic growth under extractive institutions. This study estimates the causal impact of longer time horizons of local dictators using sub-national data from 17th-century Japan, a setting with extractive institutions. Local lords at that time faced the risk of having to transfer their domains by order of the central government. In 1651, the death of the executive leader of the central government reduced the transfer risk faced by particular local lords (insiders) for plausibly exogenous reasons. Using a newly digitized historical dataset and the difference-in-differences method, I find that agricultural investment increased more in insiders' domains after 1651. This effect was not greater for the domains of lords who would have exerted more effort toward their careers, for those who would have had more knowledge on the local economy, or for those who would have been less credit constrained owing to the transfer experience, indicating that the reduced-form effect is driven by the longer time horizon channel.
Keywords: Public Goods Provision, Extractive Institutions, Feudalism
JEL Classification: H41, N45
Suggested Citation: Suggested Citation